58 Dirasat Economic Visions and the Making of an Islamabad- Beijing-Riyadh Triangle: Assessing Saudi Arabia’s Role in the Dhul Hijjah, 1441 - August 2020 China-Pakistan Economic Corridor Eram Ashraf Economic Visions and the Making of an Islamabad- Beijing-Riyadh Triangle: Assessing Saudi Arabia’s Role in the China-Pakistan Economic Corridor Eram Ashraf © King Faisal Center for Research and Islamic Studies, 2020 King Fahd National Library Cataloging-in-Publication Data Ashraf, Eram Economic Visions and the Making of an Islamabad- Beijing-Riyadh Triangle: Assessing Saudi Arabia’s Role in the China-Pakistan Economic Corridor . / Ashraf, Eram - Riyadh, 2020 52 p ; 23 x 16.5 cm ISBN: 978-603-8268-58-2 1- Saudi Arabia - Economic policy I-Title 338 dc 1441/12850 L.D. no. 1441/12850 ISBN: 978-603-8268-58-2 Table of Contents Introduction 6 1. China-Pakistan Economic Corridor 8 1.1 Gwadar 11 2. Saudi-Pakistani Relations and CPEC 22 3. Saudi Arabia, China, and Energy Relations 32 4. Saudi Arabia’s Regional Partner (India), Competitor (Iran) and CPEC 35 4.1 India 35 4.2 Iran 40 Conclusion 45 5 6 Dirasat No. 58 Dhul Hijjah, 1441 - August 2020 Introduction In 2018, the Prime Minister of the Islamic Republic of Pakistan, Imran Khan, invited the Kingdom of Saudi Arabia to join the China-Pakistan Economic Corridor (CPEC) as a third strategic partner.(1) The inclusion of Saudi Arabia in what was meant to be a set of bilateral trade agreements between China and Pakistan (hence the name China-Pakistan Economic Corridor) is intriguing. This report utilizes both primary and secondary open-data sources to ascertain Saudi Arabia’s role in this corridor, especially in the case of Gwadar. It argues that while investments in Gwadar by Saudi companies may be economically viable in the long run, their real benefit to the Kingdom will be in helping to strengthen relations with both China and Pakistan, for whom CPEC and in particular Gwadar’s success is pivotal. It also ensures a more active return to Pakistan for the Kingdom, following its involvement in the era of the Afghan- Soviet conflict.(2) With CPEC entering phase two, in which the focus has turned toward public and private collaboration in the industrial, agriculture, and social sectors, there is a need for major investments.(3) However, following a deficit in the nation’s current account, Pakistan has had to borrow heavily from countries such as Saudi Arabia and the United Arab Emirates (UAE) as well as the International Monetary Fund (IMF). Pakistan’s economic situation was such that it was not in a position to increase funding for CPEC projects; hence the need for foreign investors from countries such as Saudi Arabia.(4) Saudi (1) “Saudi Arabia Invited to Become Third Strategic Partner in CPEC: Fawad Chaudhry,” Dawn News, September 20, 2018. (2) Marvin G. Weinbaum and Abdullah B. Khurram, “Pakistan and Saudi Arabia: Deference, Dependence, and Deterrence,” Middle East Journal 68, no. 2 (2014): 211–28, 214. (3) Phase one, in comparison, was about infrastructure and energy creation; Afshan Subohi, “CPEC: The Ball is in Pakistan’s Court,” Dawn, February 10, 2020; Nowmay Opalinski, “Phase-II of the China-Pakistan Economic Corridor: Dim Prospects—Analysis,” Institute of Peace and Conflict Studies, April 15, 2020. (4) Budgeted spending for 2020 has shown a decline of 115 billion Pakistani rupees even before the crisis created by COVID-19; see Adnan Aamir, “Pakistan Slashes Annual Funding for Belt and Road Projects,” Nikkei, June 17, 2019. Also see Ansar Abbasi, “Game changer CPEC gets Rs21 bn for 2020–21,” News International, June 14, 2019. Arabia’s investments of US$21 billion in Pakistan not only helped provide the country with much-needed capital but also gave credibility to Gwadar as a site for international development. Given the global pandemic of COVID-19 and the collapse of oil prices following Saudi Arabia’s disagreement with Russia, the Saudi economy, as with the world economy in general, is expected to slow down.(5) Interregional economic platforms such as CPEC, which aim to connect with China’s transregional projects within the Belt and Road Initiative (BRI), can help the Kingdom achieve the economic goals outlined in the Saudi Vision 2030 plan.(6) Gwadar and its surrounding region have immense growth potential for investors, especially when access to the landlocked states of Central Asia is achieved as envisioned and promoted by the CPEC interconnectivity projects. In addition, the physical presence of Saudi companies in Gwadar could enable the Kingdom to affirm its relevance in this geo-strategically important area. The last time Pakistan and Saudi Arabia worked together in the region with a third party was when the Soviet Union had invaded Afghanistan. In the 1980s, together with the United States (US), they formed what became known as the “Islamabad-Washington-Riyadh triangle.”(7) This time, the project has China on board and provides both Pakistan and Saudi Arabia with a chance to improve their local, regional, and global image as harbingers of peaceful economic development. The report is divided into four sections. The first section introduces the BRI and CPEC while highlighting the importance of Gwadar to the entire (5) Meaghan Tobin, “Why Did Saudi Arabia Start an Oil Price War?” South China Morning Post, March 10, 2020; Marwa Rashad and Davide Barbuscia, ‘Saudi Arabia to Boost Borrowing as Oil Glut Weighs on Virus-Hit Economy,” Reuters, April 22, 2020. (6) Saudi Vision 2030 Document, Vision 2030: Kingdom of Saudi Arabia, 53, https://vision2030. gov.sa/sites/default/files/report/Saudi_Vision2030_EN_2017.pdf. (7) Guido Steinberg and Nils Woermer, “Exploring Iran and Saudi Arabia’s Interests in Afghanistan and Pakistan: Stakeholders or Spoilers—A Zero Sum Game?” Barcelona Centre for International Affairs, April 2013, 5, https://www.swp-berlin.org/fileadmin/contents/ products/fachpublikationen/Steinberg_Woermer_SaudiArabia_Interest_April2013.pdf. 7 8 Dirasat No. 58 Dhul Hijjah, 1441 - August 2020 project. It helps explain why Saudi Arabian investments in Pakistan, and in Gwadar in particular, have such relevancy. The second and third sections focus on Saudi Arabia’s relations with both Pakistan and China, to understand why it was possible for the Islamabad-Beijing-Riyadh triangle to emerge. Lastly, the fourth section considers the impact of Saudi Arabia’s investments in CPEC on Pakistan’s two important neighbors. India, who is Saudi Arabia’s strategic partner, and Iran, considered the Kingdom’s rival, both of whom are engaged in another interregional connectivity project together. 1. China-Pakistan Economic Corridor In 2013, China’s president, Xi Jinping, introduced two global initiatives for development named the Silk Road Economic Belt and 21st-Century Maritime Silk Road.(8) These were subsequently merged into the BRI, an initiative that has been described as “a massive infrastructure-led economic integration plan…integrating China’s trading partners by developing their infrastructure, i.e., ports, roads, airports, railways, etc., in a way that complements Beijing’s own interests.”(9) The rationale behind the idea, as Du Julan and Zhang Yifei explain, was to diversify and create opportunities for Chinese businesses undergoing structural changes inside the country and utilize their surplus supplies through Chinese foreign direct investments in other countries. As such, they point out, China is the main source of finance for BRI projects, providing loans through banks such as the Export Import Bank of China, the Silk Road Fund, and the Asia Infrastructure Investment Bank. (8) People’s Republic of China, National Development and Reform Commission, Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st-Century Maritime Silk Road, Ministry of Foreign Affairs and the Ministry of Commerce of the People’s Republic of China, March 28, 2015, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1249618.shtml. (9) Julan Du and Yifei Zhang, “Does the One Belt One Road Initiative Promote Chinese Overseas Direct Investment?” China Economic Review 47 (2018): 189–205, 191. China created six economic corridors within BRI, from which CPEC was chosen as their flagship project.(10) The five other corridors are:(11) i. China-Mongolia-Russia Economic Corridor; ii. New Eurasian Land Bridge; iii. China-Central and West Asia Economic Corridor; iv. China-Indochina Peninsula Economic Corridor; v. Bangladesh-China-India-Myanmar Economic Corridor. Two years after its initial announcement, CPEC was formally launched in 2015 with a US$46 billion economic package from President Xi Jinping on his first trip to Pakistan, leading some Pakistani commentators to term his visit a “defining moment” for Sino-Pakistan relations.(12) The funds were intended to support infrastructure and energy projects inside Pakistan, and in particular, the country’s ailing power structure, which was said to be affecting its annual gross domestic product (GDP).(13) CPEC is described by the Pakistani government, as being about “bilateral connectivity” with China.(14) The vision is to integrate the economies of the two countries through the development of various projects related to infrastructure including roads, railways, and ports, information technology systems, and people-to-people relations. The plan, based on four pillars, namely Gwadar, energy, transport infrastructure, and industrial cooperation, will be in effect until 2030.(15) As such, it has been divided into short-term projects that end in 2020; medium-term projects up to (10) It was announced by Premier Li Keqiang in 2013; Filippo Boni, Sino-Pakistani Relations: Politics, Military and Regional Dynamics (Abingdon, UK: Routledge, 2019), 81. (11) Yang Ziman, “Six Economic Corridors to Better Connect Asia and Europe,” China Daily, May 29, 2015. (12) Raza Rumi, quoted in Salman Masood and Declan Walsh, “Xi Jinping Plans to Fund Pakistan,” New York Times, April 21, 2015. (13) “Electricity outages had cost the economy about 1.5 to 2 percentage points of the Gross Domestic Product (GDP)”; Ishrat Husain, “Who’s Afraid of China,” Newsline, February 2018, para.